Saturday, June 26, 2010

Something interesting occurred to me in regards to Jevons Paradox. Not a new observation I'm sure, but new to me.

Wikipedia defines the Jevons Paradox like so: the proposition that technological progress that increases the efficiency with which a resource is used, tends to increase (rather than decrease) the rate of consumption of that resource.

Jevons showed that improvements in the conversion efficiency of steam engines tended to result, counter-intuitively, in an increase, rather than a decrease, in the amount of coal used. This observation has been used as an argument against increasing efficiency standards because these standards will actually lead to more energy use.

The problem with this interpretation is that it's wrong. Although conversion efficiency might seem to be the critical variable leading to increased consumption this isn't the case. The critical variable is the economic efficiency of conversion. Jevons indicates this in the preface of The Coal Question.

"The fact is, that a wasteful engine pays better where coals are cheap than a more perfect but costly engine."

It is well recognized that what pays more will be done in preference to what pays less. If efficiency doesn't pay, don't do it, if it does, do. There must always be this compromise in strategy because the matter of most importance is not conversion efficiency. It tends to be, this is true, but it need not be. The matter of most importance is the economic efficiency of conversion.

And so, I would reformulate Jevons Paradox more pointedly as: Economy of consumption tends to increase consumption.

How is it that efficiency has taken the place of economy and made this Paradox such a big deal? I think this switcharoo is best explained by the fact that calculating the efficiency of an engine is a straightforward matter for an engineer but there is no equivalently compact metric in economics - there's no ideal 100% perfect investment to compare everything to. Efficiency is an E word. Economy is an E word. Let's just just ummm... Put in efficiency where economy should be and see if nobody notices.

I'm not trying to steal Jevons' thunder. He knew this stuff, at least I think he did. Now I do too.

Tuesday, June 15, 2010

In a few weeks Germany is going to drop their Feed-in Tariff rate from 39.14 cents/kWh down to 32.88 cents/kWh. *CORRECTION (JULY 27TH) 34.05 CENTS/KWH. As a direct consequence of this rate reduction we should see a drop in the average price of PV systems from 2900 Euro/kWp down to around 2450 Euro/kWp during Q3 and Q4. *CORRECTION (JULY 27TH): AFTER REVIEWING IRR DATA IT LOOKS LIKE PRICES WILL STAY RELATIVELY STABLE IN Q3 & Q4. PERHAPS FALLING TO THE 2700 TO 2800 BUT EVEN THIS IS IFFY. On January 1st 2011 the Feed-in Tariff rate will drop from 32.88 cents down to around 28 cents/kWh. This should lead to the price of PV systems dropping from 2450 down to around 2200/kWp during 2011. **CORRECTION (JULY 27TH): I'M GUESSING FOR PRICES TO GO TO AROUND 2500 IN Q1/Q2 OF 2011 AND STAY RELATIVELY STABLE THROUGH THE YEAR. I'M DOUBLE DOG-DARE GUESSING FOR PRICES OF 2100 TO 2200 IN 2012.

I might be a tad off with my price projections but the overall point is that the FiT reduction will lead to a drop in system prices. If my math is right, Germany should hit grid parity at an installed cost (pre-tax) of around 2200 Euro/kWp. So, from my perspective it appears as though this price point will be hit sometime next year. *CORRECTION (JULY 27TH) SOMETIME IN 2012 SEEMS MORE LIKELY NOW. NOTE: GRID PARITY DOES NOT CREATE A SUSTAINABLE MARKET.

That's interesting in an of itself but in the back my mind I keep thinking that if Germany can reach 2200 Euro/kWp, a similar location with access to the same basic capital & labor ingredients should be able to match these installed costs - maybe not tomorrow or the next day but within the next 5 years. I think this is a reasonable assumption. But then I think - California gets 1200 to 1400 kWh per kWp compared to Germany where you get 800 to 900 kWh per kWp. Your LEC in California is going to be 30% lower!

Thursday, June 3, 2010

The photoelectric zeitgeist tends to focus on manufacturing and its symbol, the factory. This makes sense because the factory has a concrete footprint, a time line to completion and most importantly a measurable cost. As an added bonus we have mental shortcuts (research even) that helps us understand how a 1 GW factory is more efficient and competitive than a 100 MW facility.

I think we fall short when it comes to visualizing what a 1 GW installation workforce looks like. We rarely talk about how creating a 1 GW installation workforce requires a significant investment comparable to building a factory. I think this lack of recognition causes problems. It allows racking manufacturers to claim savings of 50 cents/Watt on installation without anyone calling them on the hollowness of their statements. More generically, we don't seem to be thinking about how installation costs will change as markets transition from 100 MW to 1 GW. This lack of consideration allows us to be distracted by technologies that claim installation savings which will most likely never exist. We're missing the fact that these supposed savings are more likely to be captured naturally by competitive pressures and learning by doing effects inherent is scaling up the size of the installation market. This is similar to the improvement in performance associated with scaling up from a 100 MW factory to a 1 GW factory that some of us have come to take for granted.

I suspect a big part of the reason why Germany was able to soak up so much PV in 2009 was because they had a multi-GW workforce. By way of analogy with manufacturing, they had already made the jump from the 100 MW facilities up to the GW level and captured all the associated efficiencies along the way. When the panel prices started plummeting in 2009 the Germany market with it's low installation costs was more sensitive to the drop in panel prices than anywhere else. It's now been a year since Germany's PV market began its surge (June 2010) and Germany is still the only multi-GW market around. Germany still has the lowest installation costs and by extension they still have the greatest sensitivity to falling panel prices.

What does it all mean? Sensei say the zeitgeist is out of balance. There needs to be more focus on the installation side of things. Only then will there be peace.

Wednesday, June 2, 2010

Assuming a ballpark thumbrule of 1 TWh per GW of installed capacity you'd need to install 425 GW in the next 10 years. If you assume a steady 35% YoY growth rate Europe will need to consume half of the yearly worldwide production for the next decade. That is an ambitious goal.

Moore's Law is not alone in the world of manufacturing thumbrules. Haitz' Law is a corollary manufacturing thumbrule for Light Emitting Diodes. Admittedly, these Laws are exceptions to the general rule. The general case is better described by learning curves.

If you have a decent price/production data set you can solve for b, PR, and LR. You can then resubstitute the numbers to "predict" what the future costs of production might be. Two basic caveats: 1. These equations should only be applied to young industries. 2. The results are all SWAGs.

Example a) Photoelectric cells have historically had a learning rate of about 20%. Cell production was about 10 GW/year in 2009 and if you assume a constant 25% growth rate it will reach 100 GW/year by 2020. Since we know production costs were about $1.50/watt in 2009 we can "predict" that production costs in 2020 will be about $.57/Watt. Example b) If you hold all the variables above constant but change your assumed growth rate to 35% you get production costs of about $.47/Watt in 2020.

As pointed out above, these examples are educated guesses. Thing is, when you get down to it, Moore's Law and Haitz' Law are also educated guesses. The surprising thing about Moore's Law and learning curves in general is that, when all is said and done they work pretty damn well. This is why governments and manufacturers continue to use them to guide policy and inform strategy.

The IF game part I... If Haitz' Law holds up for another 10 years we can imagine we'll be seeing a lot of LEDs. Given the validity of this risk we can imagine that Phillips and GE have transition plans and roadmaps for their lighting divisions.

The IF game part II. If photoelectric cells continue on their path for another 10 years we can imagine we'll be seeing a lot of them. But wait... something funny happens when people suggest that the learning curve for solar cells might hold up for another 10 years. Educated guesswork morphs into techno-optimistic faith. In general, you can put it down to territorial emotionalism and ignorance. Given the validity of this risk we should be thinking about transition plans and roadmaps.